During the summer, when gas prices exploded, people started driving less. Their vacations were closer to home. They saved money.

And gas prices fell.

Is less fuel consumption good or bad for the environment? Common sense says it is good.

Is lower consumption overall good or bad for the environment? It means we spend less on non-essential items. Common sense also says it is good.

Isn't it good for your household to cut costs? Isn't it wise to make your coffee at home instead of purchasing it at $3 a cup in a gourmet coffee shop? Isn't it healthy to walk instead of drive?

In short, isn't virtue good for you?

If everyone exercised such virtue, wouldn't we all be better off?

It would seem so.

Except, a large chunk of the economy is based on using credit to fuel both business and unnecessary consumption. If people spend less, then prices will go down to get them to spend more. But lower prices can kill businesses that are already in debt. If credit is squeezed and people become "virtuous" at the same time, businesses will go bankrupt and people will lose their jobs, meaning they won't have income to pay even for essentials such as food and home heating.

At the same time, this credit-based system is insane. Banks can lend out ten times as much money as they have - and collect interest on each loan. They are propped up by the Federal Reserve, which prints out more and more dollars to fund the budget deficit. This is not a free-market system. It is, instead, a recipe for over-production and debt-based consumption, both of which are economically bad for individuals and environmentally untenable. Sound transactions exchange value-for-value, not value-for-future value.

The Ruling Class's solution is to desperately prop up the current system by "bailing out" failed firms. Instead, the market should re-adjust to a sounder economic footing, without anyone starving or freezing to death. Suggestions to bring this about include those I made last week and the week before.

In a sound economy, personal virtue would be good for the economy as a whole. People who put off buying fleeting pleasures and possessions in exchange for greater financial freedom will send a signal to producers that they must create less expensive, more cost-effective goods. This fosters innovation, and soon high-quality products will be affordable for the poor that were, just a few years before, luxuries for the rich. This is how a sound economy grows. Not by creating more dollars, but by getting more and more for the dollar over time.

But the transition to a sound economy can't be made if, in the meantime, people are starving. To prevent this, we must remove regulations that keep prices artificially high, and allow free entry to any job without government interference.

For instance:

Repeal the Legal Tender Act, so that no one will be compelled to accept Federal Reserve dollars for purchases or payment of debts. A market with competing currencies will provide a check on inflation. Banks, credit unions, and other organizations could form their own monetary systems, with or without backing from gold, silver, or some other commodity. The people will decide who to trust, and they will be less likely to trust banks that lend out more "money" than they have.

Legalize industrial hemp in the United States. Its varied uses, from ethanol to paper, will create new supply sources which will force the price of resources like timber and oil to go down, which will in turn cause the price of finished products to go down.

Allow individuals to purchase non-FDA-approved drugs, and to similarly purchase "unregulated" products. Producers would still be liable for misrepresentation, but will be able to get products to market quickly and inexpensively.

Abolish the Patent and Copyright offices. Let them assert their rights in the terms of sale, and sue violators. But the government shouldn't provide monopoly protection for them.

Repeal the minimum wage. If prices fall, as they will in a recession, businesses must be free to cut expenses accordingly. Better to pay a worker less than to throw him on into the unemployment line.

Get the Federal Government completely out of union-management disputes. Whether managers hire or fire employees, or set conditions on them, is a matter of freedom of association and not the government's business.

Allow individuals to start businesses from scratch without licensing requirements or other regulatory obstacles. End the government's quasi-official relationship with groups such as the American Medical Association, and allow free entry into any profession.

Allow native-born Americans to hire themselves out as "undocumented" workers, and to engage in any voluntary barter exchange (such as, "Will work for food" without filling out an I-9).

Layers of government intervention have sharply increased the cost of living. When times are hard, however, the most compassionate thing government can do is let individuals be free to find whatever work they can, and to purchase at the lowest possible price whenever they can. Government should remove its barriers and get out of the way. And when it does, it will find that people will stop their over-spending, and businesses will end their over-production. The government will find that a free market will create real wealth, not credit-based illusions.